South Africa’s new small business agency

The Small Enterprise Finance Agency will have access to R1.4-billion in funding for South African small businesses over the next three years, with input from the Industrial Development Corporation being crucial to its effectiveness, says Economic Development Minister Ebrahim Patel.

Launching the new state agency in Cape Town on Monday, Patel said the Industrial Development Corporation (IDC) had pledged R921-million to the body over the next three years, while the government had put in R535-million.

The Small Enterprise Finance Agency (Sefa), a result of a merger between Khula, the SA Micro Finance Apex Fund (Samaf) and the IDC’s small business lending portfolio, will be a wholly-owned agency of the IDC.

It will focus on providing loans of up to R3-million to small businesses.

IDC know-how, positioning key

Samaf and Khula had previously lent out through banks and financial intermediaries which would then on-lend to small businesses. Patel said Sefa would continue to use these two channels, but would add a third channel – that of direct lending, through a direct lending product currently being piloted.

“We want to ensure that the impact is felt in jobs, in sustainable enterprises and in the growth of entrepreneurship in the economy,” said Patel, added that the lending market know-how that the IDC brought would be important.

The state development finance institution would also be better placed to include small businesses in major projects it was financing, by working out where the opportunities lay for contracts for small businesses – thereby helping to break the current high concentration of big businesses in South Africa’s economy.

Co-ordination with other agencies, banks

Sefa will work closely with other agencies, such as the Small Enterprise Development Agency (Seda), as well as with provincial agencies that finance small businesses – including Limdev in Limpopo province, the Gauteng Enterprise Propeller, the Free State Development Corporation and the Eastern Cape Development Corporation.

The new agency would also partner with the Postbank which would be set up soon, Patel said, as well as work with the country’s commercial banks to ensure that its products complemented theirs.

In addition, Sefa would encourage large companies to mentor small firms and bring them into their supply chains.

Patel said the agency’s cost-to-lending ratio was vital, noting that it would save about R20-million a year through office space and services no longer being duplicated by entities that merged in its formation.

Entrepreneurship ‘vital to any dynamic economy’

Entrepreneurship was vital to any dynamic economy, and could unlock the talent and energy of South Africans to produce wealth, Patel said.

There was a need to bring more small businesses into the country’s manufacturing, agro-processing, mining services, tourism and services, infrastructure support, and green economy sectors, Patel said.

After meeting with Patel on Monday, the agency’s board, chaired by Sizeka Rensburg, agreed to set up a dashboard to track the progress of the agency. Willie Fourie is the agency’s acting chief executive.

Rensburg said the agency would also help small businesses to take advantage of infrastructure projects by linking up with the Presidential Infrastructure Coordinating Commission.

The agency will also provide wholesale microfinance facilities to financial institutions – following on the practice of Samaf – and microfinance of up to R100 000 will be available to micro enterprises.